The gold price has taken a severe beating in the last few weeks, reaching a low on Monday when gold for immediate delivery traded briefly at $1,086.18 an ounce before making a recovery closer to the $1,100.00 level.
Gold was one of the biggest victims as commodities suffered a severe mugging this week to sink to their lowest levels in 13 years. According to Morgan Stanley analyst Tom Price, gold might be hammered even further to as low as $800 per ounce.
Writing in a report on the 22nd of July, Price said, “The backdrop for this commodity complex is deteriorating. Our current unchanged precious-metals price forecasts carry greater downside risk following July’s sell off and the persistent weakness in China’s equity markets.”
Price added it would require the Fed to start raising interest rates, another correction in China’s stock markets and a sell down of reserves by central banks in order for gold to drop as low as $800. Morgan Stanley forecasts that the precious metal is more likely to trade at around the $1,050 an ounce level which leaves its 2015 forecast unchanged. The Morgan Stanley analyst added, “It's possible that the next short term driver in metal markets will be declining oil prices.”
Goldman Sachs Group Inc. economist Jeffrey Currie said gold prices could drop below $1,000, while Standard Chartered Plc expressed the view that the metal would extend its losses.
Ken Ford, president of Warwick Valley Financial Advisors, comparing the low gold price to the fall in miners’ shares, had pointed out that the indexes tracking the gold stocks had dropped by 20% this month; roughly triple the 7% price loss suffered by gold. Ford said, “Mining shares are cheap relative to gold.”
The NYSE Arca Gold Bugs index (HUI, -0.29%) has declined by almost 23% in the last 30 days while the Philadelphia Gold and Silver index (XAU, -0.72%) has fallen by around 21% in the same period.
A report by Kitco quotes Thomson Reuters as stating that around three quarters of producing gold mines were already in the red when prices hovered around the $1,100 per ounce level.
South African gold producer AngloGold Ashanti Ltd. (AU, -1.17%) and its ADR shares have also lost 22% during the past year while Newmont Mining Corp. (NEM, -1.17%) shares have fallen by about 20% in the past month.
Meanwhile, Grant Thornton analyst Brock Mackenzie told Australian Mining, “2015 will be the peak in gold production, so every year after that there will be less gold produced, which will have a positive effect on the price.”
Gold futures were trading in the region of $1,091 an ounce on the Comex on Wednesday, picking up to trade at $1,098 overnight.
MT4 Chart: Gold